Blog# 6: Zara: IT for Fast Fashion Case Pre- and Post-Notes

Case: Zara: IT for Fast Fashion

Problem/Issue Statement

• The problem presented in the case revolves around a discussion between Xan Salgado Badas (head of IT for Inditex) and Bruno Sanchez Ocampo (technical lead for the POS system) about Zara’s current POS system. Currently, Zara’s (Inditex’s largest chain of stores) POS system is DOS based, which is an outdated operating system that Microsoft is no longer supporting. The problem is: Should Zara risk changing their OS system to risk continuing as is and an outdated OS?
• The distinction between the problems and symptoms within the case analysis are as follows:
• Main Problem: Zara is currently using a DOS based POS system that is not even being supported by Microsoft and also causes a risk for Zara if their hardware vendor upgrades their machines that make it no longer DOS-compatible. Whereas Salgado is in favor of modernizing their IT infrastructure, Sanchez is content with not fixing what’s not broken.
• Symptoms: From Salgado’s point of view, he listened to the complaints of store personnel in that an updated POS operating system could allow the use of a large screen, keyboard, and mouse to execute transactions currently reserved for the PDAs used by the staff. Also, stores would be able to see inventory of other locations instead of having to manually call. Finally, ordering could be done more efficiently by connecting a store’s inventory to the company’s distribution center for easier replenishment of stock.
• The scope of the problem involves approximately 531 Zara stores that would need to be switched to a new operating system, which would involve a lot of money, essentially creating an IT division to maintain all the upgrades and constant monitoring, and training of sales personnel. However, the benefits would also extend to the distribution centers, which would now have access to any store’s inventory. Overall, any influx of money spent on making this change would affect Inditex by incurring these new costs.

Situation Assessment

• The context of the problem is really split into two:
• Salgado: Upgrading from DOS to a Windows, Linux, or another more efficient operating system.
• Sanchez: As it was himself who created the programming and implementation of the DOS based system, he did not see a need to have to make the change to a different operating system. In fact, he was against it for the reasons of spending money, fixing something that is not broken, and going from opening a store that requires no IT involvement to having to create a department if this change took place.
• This is an ongoing discussion between the two individuals as they realize that times are changing and even their hardware vendors can change their peripherals and machines which would then leave Zara in a dangerous position; no more support for their DOS POS.
• The decision criteria to consider include:
• Salgado: Adding functionality, adding networking capability, sharing information between stores, and making the company run more efficiently with ordering and restocking items.
• Sanchez: Keeping the status quo, needing no IT involvement with the daily operations, having a store manager just unpack the POS terminal, insert some floppy disks, plug a modem into a phone line, and be ready to make sales. Also, the fact that DOS hasn’t been supported for years now and that has not caused one problem for their company is another reason he does not want to make the change.

List of Plausible Alternative Courses of Action

• This case presents two alternative courses of action:
• Salgado: Change to a Windows, UNIX, or Linux system.
• Sanchez: Continue using a DOS POS system and possibly purchasing extra current POS terminals in the event that the company’s vendor discontinued support.
• Both options address the main problem by:
• Salgado (Upgrading): By upgrading and adding functionality, you gain access:
• Live inventory
• Connecting to other stores to view inventory and not having to manually call each store
• Instantly transmitting current data to HQ and the distribution centers, specifically if needing to order an item that is running low in the store.
• Removing the need to use a PDA, which is time consuming and inconvenient (small screens).
• By having a wireless network, managers would no longer have to rely on floppy disks to tally up total sales from the registers and then transmit.
• If all the stores were permanently connected to the Internet, every location would know the theoretical inventory of all its SKUs.
• Sanchez (No Changes): By staying the course and not making any changes, you:
• Eliminate the risks of IT failure during implementation and changing the IT infrastructure of a company that is not used to having an extensive one.
• Save costs on having to replace the operating system in every store.
• Save costs on not having to train employees on the new software and functionalities.
• Putting the company at risk in regard to the robust and scalable infrastructure that would have to be built.
• Not having to create an IT department to handle any changes.
• Allowing for easier store openings by just uploading two floppy disks into the terminals and being ready to go.

Evaluation of Alternatives

• The basis for determining how to evaluate the two modes of thinking involve the time, labor, expenses, and real need for changing the POS vs. not changing the POS. Both individuals are aware that their company is the only one using a DOS-based system that their hardware vendor is supporting. This is cause for concern if their vendor dropped support, yet there was no indication that this would ever occur (based on the relationships formed). However, for as innovative as the company was with clothing, they were not up-to-date on technology. The article states that the company’s website was used primarily as a virtual window to the store’s merchandise and that selling online was not even an option. Yet, by integrating a new OS system, the potential for online sales could create a stream of revenue and opportunities for the company.
• The evaluation relates to the decision criteria developed because by taking into account the benefits and drawbacks, an informed conclusion can (hopefully) be made by Salgado and Sanchez. As the company continues to grow and expand, should the company continue relying on an obsolete operating system?
• In this scenario, I would not be very imaginative. You have to look at the cost factor. On one hand, by not making any changes, that is $0 of extra money being spent. Yet, as exhibit 13 points out, a lot of money will be going into upgrading Zara’s POS. By running the calculations, I got the following:
• Just the time it takes to program and train per store:
• Programming: 375,300 Euros
• Training for one store: 2,660 Euros
• Training for all 531 stores: 1,412,460 Euros
• Cost of Operating Systems (One Store):
• Windows:
• One-time costs: 25,570 Euros
•  Annual Costs: 270 Euros
• Unix:
• One-time costs: 25,590 Euros
• Annual Costs: 265 Euros
• Linux:
• One-time costs: 25,430 Euros
• Annual Costs: 25,440-25,580 Euros

Recommendation

• This is a tricky scenario. On one hand, one might say that the quality recommendation would be to invest into upgrading. The benefits, especially as the company continues to grow, can create real time savers by not having to manually submit order forms or spending the time to count inventory in an outdated method. Yet, by not making the change, the status quo remains and the company’s business model/operations are working. The company is profitable, growing, and creating a unique way to shop for clothes.
•  The logical recommendation goes hand in hand with the quality recommendation. Personally, I see a big risk in staying as-is, especially considering that Zara is looking to expand into new geographic territories. As the company gets bigger, that will result in more ordering, restocking, and needing instant updates on inventory levels. From personal experience, I worked for a company that initially started with a DOS-based system and eventually moved to a Windows based. The transition from a training perspective had very little growing pains and helped grow the company exponentially. Now, stores could communicate with each other, consumers could look online to see what each store had in stock, and transmitting data to HQ was done instantly throughout the day. Also, when e-mails were sent, you would not just get them in the morning and then have to wait until the next day to get more.  
• I would really consider weighing the costs vs. benefits of transitioning to a new OS system. One suggestion would be to test pilot it in two of their locations to see how effective the new functionalities are. From there, a more informed decision could be made.
• UPDATE: After giving this a second thought, my logical recommendation would be to have Zara continue on its existing OS system and not upgrade. The reason is that the risks of failure, issues, delays, and increased costs do little to convince me that this move would be wiser than keeping with DOS. Yes, Zara is the only company their hardware vendor is supporting that uses DOS, but the company’s records and revenue show that this company is working and is profitable. I would not feel comfortable jeopardizing the day-to-day operations, which would have an impact on sales personnel, distribution centers, etc.

Presentation

• If I were presenting, I would sum up the case by stating two friends (and colleagues) are seriously considering the benefits and disadvantages of upgrading Zara’s POS system from DOS to a Windows, Unix, or Linux based. There are many changes (both positive and negative) for making the change and continuing with the current system.
• The key visuals I would include are:
• PowerPoint
• Outlining the costs of upgrading
• Outlining the costs of saving by upgrading (in regard to fulfilling orders and increasing customer convenience functionality).
• Screenshots of how the new system could look on the monitors
• Testimony from store managers as to what they are looking for on a day-to-day basis from their IT infrastructure.
• I would “sell” the recommendation by keeping the focus on Zara being a growing company and showing that their DOS system is working, albeit is outdated. Yet, I would still be just as unbiased in explaining the benefits of upgrading to a newer system.
• The other delivery considerations to keep in mind are to always remain unbiased, but to have the understanding that a decision is needed and needed soon. Just like in the clothing industry, styles come and go in a matter of weeks and Zara has to know how important it is to stay ahead of competition, which could cause them to upgrade their OS in the future.

Post-Presentation Reflection

Good morning Mr. Salgado and Mr. Sanchez,

After having the evening to reflect upon the information presented by the consultants, I believe Zara is better off (at this time) remaining with its current legacy DOS-system. Given the costs of implementing a new operating system as well as finding a compatible and reliable POS provider, the risk is too high to comfortably upgrade our entire chain of stores. Whereas there are considerations that must be addressed, specifically the long-term availability of DOS support from our vendor, our operations run smooth with little to no errors. Even with our small IT department of 50 employees, everything is maintained in-house and that also includes upgrades and changes within the system.

I do not believe the risk of changing vs. not changing our OS is worth the investment at this time and we should remain status quo. That is not to say that in the years ahead, we really need to consider how to proceed should our vendor no longer offer support and more companies are utilizing Internet capabilities to enhance the store’s image, shopping experience, and order fulfillment. The consultants did discuss Wincor Nixdorf and implementing their hardware/software into an upgrade POS. 

However, it appears that the costs only reflected the amount of the installation and we would need to gather further data to accurately assess the cost savings (or increase) that would come with this project. At this time, I stand by my original decision to remain with our current DOS-POS system as the risks associated with making this change do not outweigh the efficiency we have already established in our organization. As always, I will be more than happy to further discuss this matter, but again, our best course of action for Zara is to continue with our legacy system in the present time. 

Thank you.